Three great European companies for buy-and-hold investors.
In Europe, over 80% of all companies are family firms, including 25% of the continent's 100 largest businesses. Like the great American family firms and great British family firms I've written about previously, Europe's top family businesses excel when it comes to longevity, reliability and long-run shareholder returns.
The typical family firm tends to have deep, embedded knowledge about its industry, a long-term strategic horizon and a strong balance sheet to help it weather the harsher phases of the economic cycle -- qualities that tend to foster steady, sustainable growth decade after decade.
Here are three great European family firms for buy-and-hold investors to consider.
Anheuser-Busch InBev (NYSE: BUD.US) -- often abbreviated to AB InBev -- has its headquarters in Leuven, Belgium. The group is a family firm quite unlike any other.
The 'In' in the name comes from Interbrew, which was formed by the merger of Belgium's two largest breweries in 1987: Artois (founded in 1717) and Piedboeuf (founded in 1853). The 'Bev' in the name comes from AmBev, which was formed by the merger of Brazil's two largest breweries in 1999: Antarctica (founded in 1882) and Brahma (founded in 1888). In 2004, Interbrew and AmBev merged to create InBev.
In 2008, InBev acquired US brewer Anheuser-Busch (founded in 1860) in a mammoth $52 billion deal to create AB InBev. AB InBev, whose global brands include Stella Artois, Beck's and Budweiser, is the world's largest brewer. The group generated sales of $39 billion last year, well ahead of its nearest rivals, SABMiller (LSE: SAB) ($22 billion) and Heineken (OTC: HINKY.PK) ($21 billion) -- the latter, incidentally, is a Dutch family firm, which was attractively priced for a spell last year.
In today's uncertain times, the defensive qualities of brewers are much in demand by investors, who are prepared to pay a premium earnings multiple. AB InBev's shares are currently trading at $80.56, putting the company on a on quite a high forecast current-year P/E of 17. However, that compares favourably with Heineken, on a P/E of 18, and SABMiller, on a P/E of close to 19.
L'Oreal, which was founded in 1909 by chemist Eugène Schueller, has its headquarters in Clichy, France. Today, L'Oreal is the world's largest cosmetics and beauty company, generating annual sales of $27 billion.
The founder's daughter, Liliane Bettencourt -- France's richest woman -- is 89 years old and suffering from dementia. She has recently quit the board of directors and has been replaced by her grandson, Jean-Victor Meyers, one of three directors who are appointed by the Bettencourt-Meyers family group. Collectively, the family owns 31% of the company's shares.
The well-know 'lipstick effect' -- women spend more on beauty products in recessions -- is currently in full swing. Hence, L'Oreal's shares, which are trading at $24.79, are highly rated on 21 times forecast current-year earnings -- richer than Avon Products on a P/E of 19, but cheaper than Estee Lauder on a P/E of 23.
Banco Santander (NYSE: BNC.US), named after the region where it was founded in 1857, is the largest bank in Spain and the top-weighted company in the MSCI Spain index.
Current Santander chairman, Emilio Botín, is the fourth generation of the family to lead the group. The Botín family holds relatively few voting rights in the company today, but wields considerable influence through the support of other major shareholders and close allies.
Four Botíns sit on the board of directors, including Emilio's daughter, Ana Patricia Botín. Ana Patricia is currently chief executive of Santander UK, but is expected to succeed her 77-year-old father in due course. Indeed, it's said that António Horta-Osório, one of Ana Patricia's protégés, joined Lloyds Banking (LSE: LLOY) because he knew she would always beat him to the top job at Santander.
Santander has inevitably been affected by the economic chaos in Spain and the European sovereign debt crisis. However, the group has remained profitable throughout the turmoil; its core capital ratio is strong; and its problem loans and Spanish real-estate exposure are well provisioned. Moreover, as much as 84% of Santander's profits come from outside of Spain and Portugal, with emerging markets -- mainly Latin American -- contributing 54%.
Santander has paid a 0.60 euros dividend (around $0.78) for the past three years and is on track to maintain the dividend in 2012. At the current share price of $6.57 the yield is close to 12%. Two things can happen when a yield is so big: the dividend gets cut or the share price rises substantially, narrowing the yield to a more usual level. In Santander's case, I think there's a good chance it could be the latter, although it may take some time.
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> G A Chester does not own shares in any of the companies mentioned in this article.